When it comes to a workplace accident, there are both direct and indirect costs of a worker’s comp claim to consider. You will likely think of the direct factors right off the top of your head as they are commonly considered when evaluating worker’s comp claims. However, in order to proactively manage the true cost of a worker’s comp loss, it’s important to consider both hard, or direct, and soft, or indirect, factors.
Direct, or Hard, Costs of a Claim
The typical direct costs for worker’s comp loss are covered by an insurance company. This is the cost you typically think of when contemplating a worker’s comp loss. According to the National Safety Council, the average cost for all claims combined between 2018-2019 was $42,008.
Of all the injuries that resulted in claims, motor vehicles were the most costly in terms of lost time, averaging a loss of $81,971 per worker’s compensation claim filed between 2018-2019. The other most costly injuries were burns, resulting in an average loss of $58,284, slips and falls at $47,681, and injuries resulting from being caught in equipment at a cost of $45,255.
Indirect, or Soft Costs of a Claim
There is another factor to consider when preparing for potential workers’ comp loss and that is indirect or soft costs. These are longer-term losses and don’t account for the initial costs of the claim itself. These losses are typically not covered by insurance companies and instead fall to you as an employer or to the employee. Since they are indirect, they often sneak up on employers who are not prepared to handle these unexpected costs when an injury occurs.
Consider these indirect factors of a worker’s comp claim:
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Lost Wages:
Obviously, if an employee isn’t able to work due to an injury, there will be lost wages involved. This could result in your having to come up with the money to help an employee stay afloat. -
Lost Productivity:
If a loyal and well-trained employee is unable to do their job due to injury, this can negatively impact your business in terms of product quality and productivity standards. Hiring a replacement or a temp just isn’t as good in many cases. -
3rd Party HR Costs:
In some cases, you might have to pay for legal counsel, 3rd party consultations, medical evaluations, PR costs, and more related to a worker’s comp case, which can all get expensive. -
Worker’s Comp Increase:
After a worker’s comp claim has been made, in many cases, the overall cost of your worker’s comp coverage will result in a premium increase. -
OSHA Involvement:
In some worker’s comp claims, OSHA gets involved to determine if your company was following safety protocol. Therefore, a claim could result in fines or investigation costs. -
Public Relations:
If an accident occurred on your premise that resulted in a worker’s comp claim, you could also be fighting a negative public image. After all, in 2022, virtually everything is made instantly public thanks to social media. Cancel culture can then take over and harm your business significantly more than the actual claim did. Therefore, it’s important to be proactive in terms of PR management if an accident took place, or you feel your business’s reputation could be at risk. -
Repairs/Upgrades:
In some cases, a claim might identify a problem when equipment or in your facility needs to be addressed. This indirect cost for repairing equipment and ensuring a safe work environment can be a byproduct of a worker’s comp claim. -
Company Culture:
Again, in today’s digitally based society, everything is instantly on the news. Therefore, if your company was at fault for the accident that resulted in a claim, be aware that you will have some company culture to repair. In a season when hiring quality employees is a challenge, this could also undermine your recruiting efforts.
Preparation
There is an adage that fits well here, “hope for the best, but plan for the worst”. Rather than ignore the fact that an accident could occur or that you might ever face a worker’s comp claim, plan as if it will happen. Then you will be prepared if you ever do find yourself facing the situation. Here’s how to prepare:
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Talk with your attorney
They will know what you need to do to ensure your business is protected. -
Have a PR plan in place
Know your first step if the worst should happen when it comes to facing a worker’s comp claim or your company is at fault for something. -
OSHA compliance
Make sure you are meeting all OSHA requirements and are therefore compliant. While some of the requirements can seem arduous, they are designed with employee safety in mind. Therefore, compliance will not only prevent you from facing a fine later but will hopefully prevent an accident from occurring in the first place. -
Cross-training
Cross-train employees as this will help if you ever have someone out due to injury. It will also help, though, to cross-train, so you don’t lose any productivity when an employee is on vacation, sick, on maternity leave, etc. -
Training
Hold routine training sessions to ensure that all employees know how to use equipment properly. After ensuring proper training, conduct routine safety examinations to make sure all protocols are being followed.
Bottom Line: Proactive Planning is Key
Too many businesses would prefer to give the cost of worker’s comp loss a wait-and-see approach. This means they aren’t proactive in training employees and are not overly invested in ensuring a safe working environment. However, simply avoiding a problem or pretending it isn’t there won’t do you any good once someone is injured on the job.
In this case, ignorance is most certainly not bliss. Both the direct and indirect costs of an accident can be significant. A proactive approach that considers a full 360-degree perspective of both soft or indirect and hard or direct ramifications is key to being prepared.
